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Mortgage Minute

Stacy Charron

CEO

905-215-1700

Jeff Zabel

Chief Underwriting Officer

519-654-3166

Alanna Zabel

Mortgage Specialist

226-791-5926

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Seek independent advice from professionals

Calculations that follow are for illustration purposes, not to be taken as fact.

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“To make Canada's system more fair, the inclusion rate—the portion of capital gains on which tax is paid—for capital gains for individuals with more than $250,000 in capital gains in a year will increase from one-half to two-thirds. Individuals will continue to only pay tax on 50 per cent of any capital gains up to $250,000 per year.

The inclusion rate will also increase to two-thirds for all capital gains realized by corporations and trusts.

The new rules will apply to capital gains realized on or after June 25, 2024”

Source: Canada.ca

Capital Gains tax Proposal

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Example of a High Income Individual

A high income individual living in Ontario with a $400,000 salary also has a $300,000 gain from the sale of a second property. Under the current rules, they pay income tax on 50 per cent—$150,000—of that capital gain.

If they have the same gain in 2025, they will now pay tax on $158,333 of the gain (50 per cent x $250,000 = $125,000) plus (2/3 x $50,000 = $33,333) = $158,333).

Because of their high income putting them in the highest marginal tax rate, the change to capital gains taxation will cost them $4,461 more in combined federal-provincial income tax.

Source: Canada.ca

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Current status of the capital gains tax proposals

Interestingly, the Budget Implementation Act tabled shortly after the budget excluded the capital gains tax changes. Finance Minister Chrystia Freeland insists they are still forthcoming, but it does raise questions about whether there may be further revisions to the initial proposals.

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Example 2:

You are an individual who has just sold your vacation property that you originally purchased for $200,000. The sale was completed after June 25th, 2024, for $600,000. The new inclusion rate will apply to the portion of capital gains over $250,000. Assume you had no expenses to add to the equation to simplify things; You can calculate the capital gains as follows:

$600,000 – $200,000 = 400,000

Since the full capital gain is not taxable, you can calculate the inclusion rate, the amount you will need to claim as income at tax time as follows:

$250,000 x 50% = $125,000

150,000 x ⅔= $100,000

$125,000+$100,000 = $225,000

You must add $225,000 to your income at tax time to be taxed at your marginal tax rate (25,000 more than the old/current structure is what you are taxed on)

Important: It’s always wise to speak with an income tax specialist before filing your taxes

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Capital Gains on Estates

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What is an estate and how is it taxed?*

An estate is the total monetary value of all the deceased’s investments, assets and interests. It includes a person’s belongings, physical and intangible assets, land and real estate, investments, collectibles, and furnishings.

In simple terms, 3 things happen when someone passes away:

Their legal representative files their final tax return.
When someone dies, the CRA treats any property or items owned at the time of death as though it was sold on the day before the person died, and deducts taxes from that estate. (Unless the estate is inherited by the surviving spouse or common-law partner, or dependent where certain exceptions are possible).
The rest of the estate gets distributed to beneficiaries.

*Not to be taken as professional or legal advice. Speak to qualified accountants and lawyers

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Rollover to surviving spouse: Subject to certain conditions, deemed disposition does not apply to property transferred to an eligible spouse (in the eyes of the law: see the marital status under federal legislation or de facto union under Quebec legislation). This property will therefore not be taxed until the death of the surviving spouse. This is similar to a tax deferral. There are no forms to fill out; assets left to a spouse automatically roll over.
Exemption for the principal residence. The capital gain, or profit, on the deceased's principal residence is not taxable. If the deceased had more than one residence, a calculation can be performed to determine the capital gain on each residence. If the inheritance of the property becomes a person's’ second property, and they then sold it, it would be subject to capital gains tax.
Life insurance: The death benefit paid to beneficiaries of a life insurance policy is not taxable. This amount may be included in the estate, used to pay any debts or used to cover taxes so the heirs don't have to sell any inherited property.

*Not to be taken as professional or legal advice

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